MPs call for bankers to pay 90 per cent tax on bonuses

Thing of the past: Bankers could be taxed up to 90% on bonuses under new proposals

Bankers should be hit with a punitive 90 per cent tax on bumper bonuses, MPs demanded today.

They launched their campaign for the eye-watering high levy as City banks were preparing for a new wave of bonuses less than a year after the financial system came close to meltdown.

Wall Street giant Goldman Sachs will tomorrow publish its second quarter results which could see profits of £1.2billion, putting its 5,500 London-based staff in line for bonuses averaging £430,000. MPs accused City chiefs of pretending the financial crisis had not happened by continuing to dish out "generally excessive" payments. They called on Alistair Darling to slap a 90 per cent levy on all bonuses in excess of 15 per cent of salary.

Labour MP Lindsay Hoyle, one of the MPs backing the Commons motion, condemned rewarding bankers with "suitcases full of money". Branding many of the bonuses "unjustified", he added: "No lessons seem to have been learned. The public feel quite rightly frustrated and let down."

The Chancellor will not support such an exorbitant tax rate on bonuses but warned that banks could be punished with higher capital requirements if they refuse to heed the calls to stop rewarding reckless deals with big payouts. Outlining proposed reforms of banking regulations last week, he highlighted "powers to penalise banks if their pay policies create unnecessary risk".

Lib-Dem MP Paul Holmes, who signed the motion, accused Mr Darling and the financial sector of dithering. He said: "This is a warning shot. The Government and the City can't just ignore practices that almost destroyed the economies of the western world last year."

A British Bankers' Association spokeswoman said: "The danger with a higher tax on bonuses is that it could disadvantage low-paid workers in branches for whom bonuses represent a large part of their salary." This argument is likely to be given short shrift by many MPs.

The body managing the taxpayer's stake in Lloyds Banking Group and Royal Bank of Scotland said it was sitting on paper losses of £10.9billion. UK Financial Investments Limited, which manages the public's 70 per cent stake in RBS and 43 per cent of Lloyds, said every household in the country has more than £3,000 invested in shares in the two institutions.

The losses do not include B shares involved in the taxpayer-funded asset protection scheme. An £18.1billion shortfall was registered in February.